June 26, 2008

Kroger Profit Rises 15 Percent

CINCINNATI - Kroger Co. said Tuesday that food, gas and drug discounts helped draw budget-conscious shoppers into its stores, boosting its first-quarter profit by 15 percent.

The nation's largest traditional grocery chain's results beat Wall Street expectations and Kroger raised the lower end of its earnings guidance for the year. Its shares rose almost 7 percent.

Kroger earned $386 million, or 58 cents per share, for the quarter ended May 24 compared with a profit of $336.6 million, or 47 cents per share, a year ago.

Revenue rose 12 percent to $23.11 billion from $20.73 billion a year ago.

Analysts polled by Thomson Financial expected a profit of 55 cents a share on revenue of $22.32 billion.

Last year's quarterly earnings were reduced by 2 cents per share by costs from a labor disruption at a distribution center, the company said.

The Cincinnati-based company also raised the lower end of its fiscal-year earnings guidance. It now expects earnings of $1.85 to $1.90 per share, from a previous range of $1.83 to $1.90 per share. Analysts forecast $1.90 per share.

The gas, pharmacy and food discounts help draw customers trying to save gas as costs rise by combining trips, and Kroger also says people are eating more meals at home. Sales in its deli-bakery sections were strong, as were sales for its own store brands, which are usually priced lower than major brands, the company said.

"Kroger continues to help customers stretch their budgets in a number of ways, including lower prices and our expanded generic drug and gas discount programs," David B. Dillon, Kroger chairman and chief executive, said in a statement. "Through these kinds of price reductions, our customers are saving $1 billion annually."

Grocers are facing rising costs for dairy, grains and other staples, as well as higher fuel costs to transport goods.

But Kroger has responded with stepped-up loyalty programs in which frequent shoppers earn gasoline discounts, usually 10 to 15 cents a gallon, at store stations, a program the company recently expanded nationally.

- The Associated Press

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